First Derivative Remains Negative

A popular way of analyzing the recession and whether or not there is any improvement is to make a distinction between the first derivative and the second derivative. The first derivative is about whether or not the economy is contracting or expanding, the change in the level of output. The second derivative is about whether the pace of contraction is increasing or decreasing, the change in the rate of change in the level of output.

A number of recent numbers now indicates that while the second derivative probably was positive in the second quarter, the first derivative remains negative. The most important example of this is today's employment report.

It showed a net job loss of 467,000 according to the Payroll survey and 374,000 according to the Household survey. And moreover, the average work week fell to a new low while growth in hourly earnings fell to zero (on a monthly basis), meaning that June not only may have had a negative first derivative but also a negative second derivative, at least compared to May and April.